Random Motors Project

Submission
Name – Shilpa Karajagi
Q-1a) Formulate the null hypotheses to check whether the new models are
performing as per the desired design specifications.

For Rocinante36: For Marengo32:

Mileage HO : =22 Km/Ltr Mileage HO : = 15 Km/Ltr

Top speed HO := 140 Km/hr Top speed HO : = 210 Km/hr

Q-1b) Formulate the alternate hypotheses to check whether the new models
are performing as per the desired design specifications.

For Rocinante36: For Marengo32:

Mileage H1 : ≠ 22 Km/Ltr Mileage H1 : ≠ 15 Km/Ltr

Top speed H1 : ≠ 140 Km/hr Top speed H1 : ≠ 210 Km/hr

Q-2) In order to comment on whether the design specifications are being
matched or not, perform relevant hypothesis tests and calculate the p-value for
each. What will you conclude? Assume you are performing the tests at 95%
confidence level.
For Rocinante36: Conclusion
For Rocinante36: Since P Value of
p-value for mileage = 0.08221 mileage & Top speed is greater than
p-value for top speed = 0.4316 the alpha value of 0.05, We fail to
For Marengo32: reject Null Hypothesis.
For Marengo32: Since P Value of
p-value for mileage = 0.1342 mileage & Top speed is greater than
p-value for top speed = 0.373 the alpha value of 0.05, We fail to
reject Null Hypothesis.
Q-3) You have learnt about the possible errors that might result from the
hypothesis tests. What type of error is more expensive for Random motors
based on the hypothesis they are testing? Why? Assume that you need to
refund all your customers if your cars deviate from specifications.
The type of error which is more Reason:
expensive:
If we go along with specifications and
Type 2 Error : We fail to reject when
do not deliver what we claim, we will
Null hypothesis is false. be refunding huge amount compared
Mileage or top speed is not upto the to delivering a car that supersedes
specificcation given but we failed to the specifications mentioned.
reject the Null hypothesis.
Q-4) Develop a regression equation for each model at 95 percent confidence
level. From the regression equation predict the sales of the two models.
Develop the regression equation for the Develop the regression equation for the
Rocinante models and Predict the number Marengo models and Predict the number of
of unit sales of Rocinante36 model? unit sales of Marengo32 model?

Regression coefficients Regression coefficients

Price: -0.7950 Price: -0.1867

Mileage: 8.3063 Mileage: 0.0413

Top speed: -0.01857 Top speed: 0.2208

Equation: = 50.723+(- Equation: =(-13.4476)+(-

0.7950*Price)+(8.3063*mileage) 0.1867*Price)+(0.2208*top speed)
Predicted Sales(in units): 227896.7 Predicted Sales(in units): 25265.7
Q-5) Based on sales prediction, what is the overall predicted profit for
Rocinante36 model and Marengo32 model ?

Overall predicted profit

Rocinante36 Model: Rs. 227896.7 lakhs

Marengo32 Model: Rs. 202125.6 lakhs

Q-6) As a CEO, you wish to invest only in the model which is predicted to be
more profitable. Which model among Rocinante36 and Marengo32 will you
invest in?

Which model you will invest in?

Predicted profit for Rocinante36 has a profit of Rs. 227896.7 lakhs &
Marengo32 has a profit of Rs. 202125.6 lakhs.

As I wish to invest only profitable model, I will invest in Rocinante36.

Q-7) Now you must have derived the regression equation for both models, Rocinante and
Marengo. Now if you increase the price of Rocinante36 and Marengo32 by 1 lac rupees
each, which car will have a higher impact on the sales due to increase in price? Give proper
logic for your answer. You can consider that all other specifications such as mileage and top
speed remain the same for both models.

Which car is most affected by a price increase? Why?

As per predicted sales, increase in price lead to decrease in sales i.e Rocinante36 sales
decreased by 795 Units wherein, sales of Marengo32 decreased by 186.7 units.
Regression coefficient of price of Rocinante36 is higher than regression coefficient of price of
Marengo32, however % change in sales unit of Rocinante36 after price increase is negligible
compared to old sales units (227896.7 units) i.e 0.35% whereas Marengo32 sales decreased
by 186.7 units compared to units before price change (25265.7 units) which is almost 0.74% .
This dip in sales will impact profitability of model with

That’s why impact of increase in price is higher on Marengo32 than Rocinante36 .

Q-8) After developing the regression equation for both models (Rocinante and Marengo), if you
analyse the p values for coefficients in the regression results, you will notice that some of the
regression variables (top speed, mileage and price) are insignificant. Remove the insignificant
regression variables from your selection and rebuild the regression model using only significant
variables. Compare the Adjusted R square value for the new and old regression model. Do you
notice any change in Adjusted R square value? If yes, explain the reason for the change.
Is there a change on Adjusted R square Value? If so, Why?
Model Parameter All Variable Significant
Variable
Rocinante36 R Square 0.9958 0.9957
Adjusted R Square 0.9954 0.9954
Model Parameter All Variable Significant
Variable
Marengo32 R Square 0.8631 0.8629
Adjusted R Square 0.8479 0.8531
Adjusted R square value increases only if extra independent variable is improving the model. From above data
It can be noticed that Adjusted R Square for both models has increased because we have considered only
significant variables improving the model.